Madhavi Edible Bran Oils Pvt. Ltd. Vs. Immaneni Eswara Rao & 5 Ors.- It is held that the application filed at the instance of the Resolution Professional and Successful Resolution Applicant on the basis of avoidance is maintainable even after the approval of the Resolution Plan.

NCLAT (17.07.2023) In Madhavi Edible Bran Oils Pvt. Ltd. Vs. Immaneni Eswara Rao & 5 Ors. [Comp. App. (AT) (CH) (Ins) No. 401 of 2022 (IA Nos. 960 & 961/2022) and 388 of 2022 (IA Nos.924, 925 & 926/2022), (2023) ibclaw.in 466 NCLAT] held that;

• It is held that the application filed at the instance of the Resolution Professional and Successful Resolution Applicant on the basis of avoidance is maintainable even after the approval of the Resolution Plan.

Excerpts of the Order;

17.07.2023: This order shall dispose of two appeals bearing Company Appeal (AT) (CH) (Ins) No. 401/2022- Madhavi Edible Bran Oils Pvt. Ltd. Vs. Immaneni Eswara Rao & 5 Ors. (hereinafter referred to as 1st Appeal) and Company Appeal (AT) (CH) (Ins) No. 388/2022 -Immaneni Eswara Rao Erstwhile RP of M/s. Segno Ceramics Pvt. Ltd. Vs. Narahari Prasad Narasimha Rao Director (Suspended) & 4 Ors. (hereinafter referred to as 2nd Appeal).

# 2. Both the appeals have arisen from the common order dated 20.09.2022 passed by NCLT Amravati Bench dismissing I.A.(IBC) No. 108/2022 filed by the Successful Resolution Applicant from which Appeal No. 1 has arisen and I.A.(IBC) No. 94/2022 filed by IRP from which Appeal No. 2 has arisen.

# 3. In brief, M/s Trishla Minerals (Operational Creditor) filed an Application under Section 61 of IBC Code, 2016 against M/s Segno Ceramics Private Limited (Corporate Debtor) which was admitted on 22.09.2019. The Resolution Plan of the S.R.A. (Madhavi Edible Bran Oils Pvt. Ltd.), Applicant in I.A. No. 108/2022, was approved by the Tribunal on 17.03.2021. In both the appeals, Avoidance Application was filed by the Resolution Professional as well as S.R.A. The issue involved was as to whether the Avoidance Application can be decided, filed after the Resolution Plan is approved. This issue has been decided against the Appellant in both the appeals relying on a Single Bench Judgment of Delhi High Court rendered in M/s Venus Recruiter Private Limited Vs. Union of India and Ors. – 2020 SCC Online Del 1479.

# 4. It is an admitted case of the parties that the decision in the case of M/s Venus Recruiter Private Limited Vs. Union of India and Ors was reversed by Division Bench of Delhi High Court in the case – TATA Steel BSL Ltd. Vs. M/s Venus Recruiter Private Limited Vs. Union of India and Ors. reported in MANU/DE/0158/2023 and followed in the order passed by this Tribunal in CA(AT)(Ins) No. 437 of 2023, titled as Kapil Wadhawan Vs. Piramal Capital & Housing Finance Ltd. & Ors. in which it has been held that the application for avoidance is still maintainable dehors the approval of the Resolution Plan.

# 5. In view of the aforesaid facts and circumstances, once the decision of the learned Single Judge, on the basis of which the impugned order has been passed, has been reversed by the Division Bench of Hon’ble Delhi High Court in the case TATA Steel BSL Ltd. Vs. M/s Venus Recruiter Private Limited Vs. Union of India and Ors. (Supra) followed by a decision of this Tribunal in Kapil Wadhawan Vs. Piramal Capital & Housing Finance Ltd. & Ors., the question involved in this is no more res integra and decided as such and it is held that the application filed at the instance of the Resolution Professional and Successful Resolution Applicant on the basis of avoidance is maintainable even after the approval of the Resolution Plan.

# 6. In view of the above, both the appeals are hereby allowed. The impugned order passed in both the appeals are set aside and the matter is remanded back to the learned Tribunal to decide the applications on merits after hearing both the parties in accordance with law by passing a speaking order.

# 7. At this stage, while parting with this case, we make it clear that we have not observed even a word about merits of the case which shall be decided by the learned Tribunal in regard to both the applications i.e., I.A.(IBC) No. 108/2022 and I.A. (IBC) No. 94/2022. The parties are directed to appear before the learned Tribunal on 01.08.2023.

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Suresh Kumar Patni and Ors. Vs. Bank of Baroda and Anr. - A decision in a proceeding under Section 66 of the IBC does not influence or affect in any manner an independent consideration of Wilful Defaulter identification within the purview of the Master Circular.

High Calcutta (14.06.2023) In Suresh Kumar Patni and Ors. Vs. Bank of Baroda and Anr.[WPO/374/2023, (2023) ibclaw.in 552 HC] held that;

• Such adjudication by an adjudicating authority on the anvil of Section 66 is different in respect of yardsticks and tests from a Wilful Defaulter declaration under the Master Circular of the RBI. 

• The yardsticks and tests stipulated in the Master Circular are more extensive and a shade different from those stipulated in Section 66 and, as such, parallel carriage and/or disposal of the two proceedings is not barred by the law.

• A decision in a proceeding under Section 66 of the IBC does not influence or affect in any manner an independent consideration of Wilful Defaulter identification within the purview of the Master Circular.

Blogger’s comments;  The specific purpose is to identify wilful defaulters for the purpose of alerting bankers, financial institutions and other financial and commercial entities, which might have transactions in the corporate sphere, 

This raises an impertinent question as to what purpose will be served declaring CD as wilful defaulter after commencement of CIRP with subsequent liquidation of the CD, if not resolved during CIRP. Similar is the question for declaring a person as wilful defaulter during individual insolvency proceedings. 

Secondly, whether wilful defaulter proceedings are independent of the borrower ? This is amply clarified that guarantor can be declared wilful defaulter only if he fails to comply with the demand of the lender despite having sufficient means to make the payment of the dues. 

• # 2.1.2 Unit: The term ‘unit’ includes individuals, juristic persons and all other forms of business enterprises, whether incorporated or not. In case of business enterprises (other than companies), banks / FIs may also report (in the Director column of Annex 1) the names of those persons who are in charge and responsible for the management of the affairs of the business enterprise.

• # 2.6. As such, where a banker has made a claim on the guarantor on account of the default made by the principal debtor, the liability of the guarantor is immediate. In case the said guarantor refuses to comply with the demand made by the creditor / banker, despite having sufficient means to make payment of the dues, such guarantor would also be treated as a wilful defaulter.

Are we not forgetting the implications of section 32A, being the protections provided to successful resolution applicants or purchasers of assets during the liquidation process.

Excerpts of the Order;

The Court:- Learned counsel for the petitioners contends that the issuance of show cause notice by the Wilful Defaulter Identification Committee, which has been impugned herein, was patently without jurisdiction and non-maintainable. It is argued that in view of the pendency of an application under Section 95 of the Insolvency and Bankruptcy Code, 2016, read in the context of Section 96 thereof, there is an operative moratorium in respect of the debt in question, in connection with which the petitioners are sought to be declared to be wilful defaulters.

That apart, it is argued that a CIRP (Corporate Insolvency Resolution Process) was undertaken with regard to the corporate debtor and culminated in the approval of a resolution plan.

In view of the debt itself being thus resolved, that cannot be any further subsisting cause of action for declaration of wilful defaulter against the petitioners, who were merely a guarantors in respect of the same debt.

Moreover, a proceeding under Section 66 of the IBC had been initiated previously by the Resolution Professional, which culminated in favour of the petitioners. As such, the issuance of the show cause notice on the premises of the said debt is not maintainable at this juncture.

That apart, learned counsel argues that even on merits, the show cause has not disclosed any credible case against the petitioners for the purpose of declaration of wilful defaulter.

The above arguments are controverted by learned counsel for the respondent authorities. Learned counsel submits that the scope of operation of Sections 14 and 96 are different. Whereas Section 14 refers to the legal actions in respect of the corporate debtor, Section 96 speaks about legal actions or proceedings in respect of any ‘debt’.

It is submitted that a Coordinate Bench of this Court, in the judgment of Adarsh Jhunjhunwala Vs. State of Bank of India and Another reported at (2021) SCC Online Cal 3351, has already decided the issue. In terms of the ratio laid down herein, a moratorium under Section 96 is not sufficient to stall a show cause notice or a proceeding under the Master Circular of the RBI for the purpose of identification of a wilful defaulter.

Learned counsel also cites a judgment of a learned Single Judge of the Gujrat High Court (Ahmedabad Bench), which relied, inter alia, on the judgment of Adarsh Jhunjhunwala and held in same tune.

Learned counsel argues that the scope of operation of Section 96 is entirely different from a declaration of wilful defaulter proceeding. As such, the pendency of the one would not be a deterrent to a proceeding for declaration of wilful defaulter.

That apart, it is argued that the scope of operation of Section 66 of the IBC is on an entirely different footing than a wilful defaulter declaration. Learned counsel places the respective provisions for elaborating his arguments.

Even at the first blush, it is clear that the moratorium under Section 96 of the IBC refers to the ‘debt’ and not the ‘corporate debtor’.

Although learned counsel for the petitioners has argued that the debt being resolved upon the resolution plan being accepted with regard to the corporate debtor, the proceeding for identification of wilful defaulter cannot survive or be initiated, the interpretation sought to be lent in the observations of the learned Single Judge in Adarsh Jhunjhunwala, following the judgment of the Supreme Court in SBI Vs. Ramakrishnan is somewhat different from that sought to be portrayed by the petitioner.

In the said judgment of the Supreme Court reported at (2018) 17 SCC 394, the Supreme Court proceeded to hold that Sections 96 and 101, when contrasted with Section 14, would show that Section 14 cannot possibly apply to personal guarantor. An application filed under Part-III an interim moratorium or moratorium becomes applicable. The Supreme Court observed that first and foremost this is a separate moratorium applicable separately in the case of personal guarantors against whom insolvency resolution processes may be initiated under Part-III. Secondly, the protection of the moratorium under the said Section, it was held, is far better than that of Section 14. The difference in language was also cited to be a reason for the difference between said sections.

However, in paragraph 14 of the judgment of the learned Single Judge, while interpreting the judgment of the Supreme Court, it has been observed that the very purpose of separation of corporate insolvency under Part–II of the IBC from individual insolvency under Part-III must be understood to be separate and distinct and that they aim to achieve different ends. The principles applied in corporate insolvency cannot be applied to personal insolvency.

Such elaboration of the purpose of the distinction as held by the learned Coordinate Bench, with respect, is well within the periphery of sound logic and is accepted by this Court as well. The distinction sought to be drawn by the Supreme Court between a moratorium under Section 14 and that under Section 96 has no relevance in the present context.

The distinction sought to be drawn between said Sections is apparently between the legal proceedings against the ‘corporate debtor’ and legal action and proceeding in respect of a ‘debt’.

Learned counsel for the respondents is justified in contenting that the purpose of Section 96 may be gathered from the Repayment Plan envisaged in Section 105 of IBC.

The latter Section clearly stipulates a scheme of repayment, which would, obviously, be frustrated if any legal action or proceeding in respect of the same debt culminates in an order or is visited with an interim order in the meantime.

The entire scheme of the IBC itself indicates the combined political will not only to consolidate the laws related to insolvency, reorganization and liquidation/bankruptcy of all the persons including companies, individuals etc. under one statutory umbrella, but also for the time-bound resolution of defaults and seamless implementation of liquidation/bankruptcy and maximizing asset value as well as to encourage resolution as the first resort for recovery.

However, the purpose of the Master Circular of the RBI for identification of wilful defaulters is on a somewhat different footing. The latter is not for the purpose of providing an infrastructure for resolution of a debt or to facilitate recovery.

On the other hand, whereas the moratorium contemplated in Section 14 with respect to the corporate debtor itself facilitates a resolution of the debt and ensures that the business of the corporate debtor can thrive again, in respect of the Master Circular, the specific purpose is to identify wilful defaulters for the purpose of alerting bankers, financial institutions and other financial and commercial entities, which might have transactions in the corporate sphere, with regard to the dealings of certain persons who fall within the purview of the said Circular.

As such, the interim moratorium contemplated in Section 96 of IBC is rather for the purpose of protecting the debt in order to facilitate the ultimate scheme, that is, repayment plan within the contemplation of Section 105. However, mere protection of the debt or the corporate debtor cannot be equivalent to giving unnecessary and unwarranted protection to persons who are guilty of wilful default under the Master Circular of the RBI.

Insofar as Section 96 is concerned, the same concerns itself with the ‘debt’. Section 14, on the other hand, speaks about the corporate ‘debtor’. Thus the Sections respectively seek to protect each of the said entities.

However, the declaration of wilful defaulter is not to save or protect either of the two but to raise an alert in the banking system and the commercial sector of the country, so that persons having commercial transactions become aware of the fact that certain persons are Wilful Defaulters. As such, a guarantor, who stands on co-extensive footing with the debtor, cannot be absolved from a wilful defaulter proceeding at the inception, merely by citing the pendency of a proceeding under Section 96 of the IBC.

Insofar as Section 66 of the IBC is concerned, it is evident from the said Section itself that the area sought to be covered thereby is entirely distinct and different from a wilful defaulter proceeding. The provisions of Section 66 deal with fraudulent trading or wrongful trading and provide that if during the Corporate Insolvency Resolution Process or a liquidation process, it is found that any business of the corporate debtor has been carried on with intent to default creditors of the corporate debtors or for any fraudulent purpose, the Adjudicating Authority, may on the application of the Resolution Professional, pass an order that any persons who were knowingly parties to the carrying on of the business in such manner shall be liable to make such contributions to the assets of the corporate debtor as it may deem fit. Such adjudication by an adjudicating authority on the anvil of Section 66 is different in respect of yardsticks and tests from a Wilful Defaulter declaration under the Master Circular of the RBI. The yardsticks and tests stipulated in the Master Circular are more extensive and a shade different from those stipulated in Section 66 and, as such, parallel carriage and/or disposal of the two proceedings is not barred by the law.

A decision in a proceeding under Section 66 of the IBC does not influence or affect in any manner an independent consideration of Wilful Defaulter identification within the purview of the Master Circular.

In view of the above discussions, there is no reason for this Court to interfere, particularly in view of the fact that the present proceeding for declaration of wilful defaulter is yet at an inchoate stage and ought not to be disrupted at the stage of issuance of show cause, since the petitioners have ample opportunity to participate in the hearing fixed by the identification committee and, thereafter, if aggrieved by the said decision, to move the review committee with further rejoinder(s).

Hence, WPO/374/2023 is dismissed without any order as to costs.

However, since affidavits have not been invited, it is deemed that none of the allegations made by the parties against each other in the writ petition or in connection therewith are admitted by the other side.

No order as to costs.

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Union Of India vs M/S.Chaturbhai M. Patel & Co. - It is well settled that fraud like any other charge of a criminal offence whether made in civil or criminal proceedings, must be established beyond reasonable doubt;

Supreme Court (1975.12.09) In Union Of India vs M/S.Chaturbhai M. Patel & Co.  [Civil Appeals Nos. 972- 973 of 1968] held that;

• It is well settled that fraud like any other charge of a criminal offence whether made in civil or criminal proceedings, must be established beyond reasonable doubt; per Lord Atkin in A. L. N. Narayanan Chettyar v. Official Assignee, High Court Rangoon.

• However suspicious may be the circumstances, however strange the coincidences, and however grave the doubts, suspicion alone can never take the place of proof.

Excerpts of the Order;

This is a defendant's appeal by certificate granted by the High Court of Allahabad under Art. 133(1) of the Constitution of India. The plaintiff which is a registered partnership firm at Banaras dealing in Bidi tobacco filed the present suit for damages against the defendant Union of India on the allegation that it had despatched a consignment containing tobacco at Banaras for Gaya in Bihar for delivery to the firm Chaturbhai M. Patel & Co. at Gaya. This consignment was booked under Invoice No. 107 Railway Receipt No. 89551 dated July 9, 1954. The plaintiff's allegation was that due to negligence of the Railway the identical goods despatched by the plaintiff did not reach the consignee at Gaya but the goods containing inferior type of tobacco reached there which caused serious loss to the plaintiff. The suit was filed after notice under s. 80 of the Code of Civil Procedure was given. The plaintiff also claimed refund of the excise duty which was paid by the plaintiff. The suit was resisted by the defendant mainly on the ground that due to fraud and collusion between the plaintiff in Banaras and his father's firm in Gujarat, the consignment at Benaras was interchanged by manipulation and deliberation so that the inferior goods were sent to Gaya and the superior goods were sent to Gujarat which were sold by the firm at Gujarat and huge profit was earned by the aforesaid firm.

The Trial Court framed a number of issues and accepted the defence and accordingly dismissed the suit. The plaintiff then filed an appeal in the High Court of Allahabad which reversed the judgment and decree of the Trial Court and decreed the plaintiff's suit for damages but refused to pass a decree regarding the amount of the excise duty said to have been paid by the plaintiff.

Mr. Gobind Das appearing for the appellant submitted that there were number of suspicious circumstances which clearly went to show that some amount of fraud had been played on the defendant by the collusion of the plaintiff with his father at Gujarat whose firm was known as Mangal Bhai Prabhu Das. In support of his contention he has relied on three or four circumstances which have been fully discussed by the High Court.

On a perusal of the judgment of the High Court we find that the case is concluded by findings of fact and normally the appellant could not have been granted the certificate for leave to appeal but for the fact that the judgment of the High Court was one of reversal and the valuation of the suit was over Rs. 20,000/-. Nevertheless the High Court has discussed the suspicious circumstances relied upon by the defendant/appellant and has held that there was no conclusive or reliable evidence to prove the fraud or collusion as alleged by the defendant. One of the circumstances was that on June 9, 1954 a consignment of 191 bags of tobacco was booked by Mangal Bhai Prabhu Das the father of the plaintiff from Railway Station Vasad in Gujarat to Indian Zarada Factory, Banaras which was owned by the plaintiff. This consignment was taken delivery of by one Mohanlal an agent of the Indian Zarada Factory at Benaras and was re-warehoused in the bonded warehouse of the Factory at Benaras. On the same day the consignment of the plaintiff was also warehoused at the same place. Thereafter a forwarding note was presented at Benaras on June 24, 1954 on behalf of the Indian Zarada Factory for despatch of 174 bags of tobacco to his father Mangal Bhai Prabhu Das Patel in Gujarat on the ground that the goods were of an inferior quality. It is said that the goods of inferior quality were deliberately despatched to Gaya, Whereas the other consignment was sent to Gujarat by changing the marks on the bags. The High Court, however, has pointed out that there was absolutely no evidence to show that such a manipulation or changing the marks was done either by the plaintiff or his agent at Benaras.

Similarly reliance was placed on the fact that although the consignment reached Gaya on July 17, 1954 yet the delivery of the aforesaid consignment was taken by the plaintiff cousin at Gaya more than a month thereafter i.e. on August 25, 1954 and that too after the Railway authorities at Gaya wrote a letter to the consignee on August 23, 1954. The High Court has pointed out that there is no evidence to show that the consignee at Gaya knew that the goods had arrived there on July 17, 1954 and the letter which was sent to the uncle of the plaintiff at Gaya was received by him after a long time. There is no doubt that there was some amount of negligence on the part of the Railway authorities because they wrote a letter to the consignee at Gaya more than a month after the goods were received and if they had sent the letter immediately after receipt of the consignment, and if in spite of that there was delay in taking delivery, something could be said for the plaintiff.

Lastly it was urged by Mr. Gobind Das for the appellant that the plaintiff who was the owner of the Indian Zarada Factory at Benaras and his father who was the owner of the firm in Gujarat appear to have entered into a conspiracy to defraud the defendant in view of their close relationship. The High Court has rightly pointed out that the plaintiff is a separated son and has nothing in common with his father, except the business in tobacco which is carried on at two different places. It has also been pointed out by the High Court that the father has married a second wife and that shows that there is no close affinity between the plaintiff and his father. Further more, there is absolutely no evidence to show any prior meeting of minds between the plaintiff and his father before the consignment was sent either to Gujarat or Gaya so as to raise an inference that these two persons had hatched up a conspiracy in order to defraud the defendant. This argument, therefore, has no force and must be overruled.

The High Court has carefully considered the various circumstances relied upon by the appellant and has held that they are not at all conclusive to prove the case of fraud. It is well settled that fraud like any other charge of a criminal offence whether made in civil or criminal proceedings, must be established beyond reasonable doubt; per Lord Atkin in A. L. N. Narayanan Chettyar v. Official Assignee, High Court Rangoon. However suspicious may be the circumstances, however strange the coincidences, and however grave the doubts, suspicion alone can never take the place of proof. In our normal life we are sometimes faced with unexplainable phenomenon and strange coincidences, for, as it is said, truth is stronger than fiction. In these circumstances, therefore, after going through the judgment of the High Court we are satisfied that the appellant has not been able to make out a case of fraud as found by the High Court. As such the High Court was fully justified in negativing the plea of fraud and in decreeing the suit of the plaintiff.

Cross objections have been filed by the plaintiff/respondent for disallowing the amount of excise duty paid by the plaintiff. After persuing the judgment of the High Court, we find absolutely no merit in these cross objections.

The result is that the appeal and the cross objections are dismissed, but in the circumstances of the case without any order as to costs.

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Renuka Devi Rangaswamy,IRP of M/s. Regen Infrastructure and Services Pvt. Ltd. Vs. Mr. Madhusudan Khemka - Dishonesty’, is an essential ingredient of `Fraudulent Trading’. The `Aspect of Dishonesty’, is to be established and it cannot be inferred in any manner.

NCLAT (05.06.2023) In Renuka Devi Rangaswamy,IRP of M/s. Regen Infrastructure and Services Pvt. Ltd. Vs. Mr. Madhusudan Khemka [Company Appeal (AT) (CH) (INS.) No. 356 of 2022] held that;

• A `preponderance of probability suffices’, but the degree of probability must be such that the `Tribunal’, is satisfied and further that under Section 66 of the I & B Code, 2016, it is not essential to attract that there ought to be a `Debtor’ and a `Creditor’ relationship.

• Dishonesty’, is an essential ingredient of `Fraudulent Trading’. The `Aspect of Dishonesty’, is to be established and it cannot be inferred in any manner.

• It is crystalline clear that the transaction of `Transfer of Assets’, among / within the `Group Companies’, `ex-facie’, will not come within the umbrage of the `Fraudulent Trading’, as per Section 66 (1) of the Code, as opined by this `Tribunal’.

• Comes to a conclusion that the `Appellant / Applicant’, had not established the `Aspect of Fraud’ or `Dishonest Intent’, on the Respondents’ side, to the subjective satisfaction of this `Tribunal’.

• A company may actually be insolvent at a given time; but its directors may bona fide hold a different view. Even in a case where they are aware of the true position, they may still think that all was not lost and that they would be able to stem the rot by further borrowings and improving the business.

Excerpts of the Order;

The `Appellant / Interim Resolution Professional’ (`IRP / RP’) of M/s. Regen Infrastructure and Services Pvt. Ltd., has filed the instant Comp. App (AT) (CH) (INS.) No. 356 of 2022, before this `Tribunal’, as an `Aggrieved Person’, in respect of the `impugned order’, dated 01.07.2022 in IA (IBC) / 487 (CHE) / 2021 in IBA/1424/2019, passed by the Adjudicating Authority’ (`National Company Law Tribunal’, Division Bench – II, Chennai).

# 2. The `Adjudicating Authority’ (`National Company Law Tribunal’, Division Bench – II, Chennai), while passing the `impugned order’ in IA (IBC) / 487 (CHE) / 2021 in IBA/1424/2019, at Paragraph Nos.36 to 38, had observed the following:

36. “From the averments and in the submissions made by the Applicant, it is seen that the Applicant has submitted that the agricultural lands at 9 locations belonging to the farmers were purchased with the funds of the Corporate Debtor during the month of February 2017 and March 2017 for a sum of Rs.1,97,97,187/-. It was submitted that the 3rd Respondent is a related party of the Corporate Debtor by virtue of having a common Directorship and is represented by the 4th to 6th Respondent Directors. However, on the contrary the Learned Counsel for the Respondent has submitted that the money for the lands that were purchased by the 3rd Respondent were given by RPPL to the Corporate Debtor which in turn provided that money to the 3rd Respondent which is one of the SPVs created by the Regen Group. It was submitted that the RPPL has funded the Corporate Debtor for the development of the project and that the transaction has happened within the group. It is required to be noted that a transfer of assets within the group companies per se would not constitute `fraudulent trading’ as stipulated under Section 66(1) of IBC, 2016. In the present case, the reason given by the Respondent in respect to transfer of assets among its group companies appears to be plausible and cannot be brought under Section 66(1) of IBC, 2016.

37. Further, the Hon’ble High Court of Himachal Pradesh in the matter of “Hypine Carbons Limited -Vs- J.C. Bhatia and others’’, decided on 13.11.1998, had held that;

34. Mere failure on the part of the Respondents to initiate legal steps against the debtors would not bring the case within the ambit of Section 542 of the Act, unless it is shown that the respondents had failed to do so with fraudulent intentions to defraud the creditors, or any other person(s), or for any other fraudulent purpose.

38. Thus, the Applicant has not made a case of fraud or dishonest intention on the part of the Respondents except making sweeping allegations and hence Section 66 of IBC, 2016 cannot be invoked under such circumstances. Hence for the aforestated reasons, we find no merits in the present Application.’’

and resultantly, dismissed the `Application’, but without costs.

Appellant’s Submissions:

# 3. Challenging the `impugned order’, in IA (IBC) / 487 (CHE) / 2021 in IBA/1424/2019, passed by the `Adjudicating Authority’ / `NCLT’, Division Bench – II, Chennai, the Learned Counsel for the `Appellant’ submits that the `Adjudicating Authority’, was not correct in ignoring the documented evidence, before it, such as;

(i) Sale Deeds which reflects that consideration was paid by the Corporate Debtor, towards the purchase of land (vide Page 150 to 622, Vol. II, III and IV of the Appeal Paper Book);

(ii) Bank Statements of CD showing payments made for purchase of lands by CD to the farmers (vide Pg No. 109 to 149 of the Vol. I of the Appeal Paper Book);

(iii) Financial Statement for the year 2018-2019 of R3 not reflecting any fixed assets being held in its name thereby how can the ownership of land in name of R3 is justifiable (vide Page  Nos.836 to 853, Vol. VI of the Appeal Paper Book);

(iv) Financial Statement of CD revealing land held by CD which is including Gujarat and other places however Sale Deeds reflecting R3 as the owner (vide Pg No. 872 to 888, Vol VI of the Appeal Paper Book).

# 4. According to the Appellant, during the course of taking charge of the affairs of RISPL, she discovered that although as per the `Audited Financial Statements’, `RISPL’, had acquired `Lands’, in Morbi District, Gujarat, none of the documents relating to the same, were available in the Offices of `RISPL’. Further, when queries were put to the Suspended Directors of `RISPL’ (the Respondent Nos. 1 and 2), they simply avoided the same, without furnishing any information or documents.

# 5. The Learned Counsel for the Appellant points out that the `impugned order’, is a `perverse’ one and further, in response to the `Fraud’, alleged against the Respondents, together with the overwhelming documentary evidence, substantiating the same, only, the Respondent Nos. 1 and 2, had filed a Counter, before the `Adjudicating Authority’ / `Tribunal’, and that the Respondent Nos. 3 to 8, had not filed any Counter, before the `Adjudicating Authority’.

# 6. The Learned Counsel for the Appellant contends that although the Respondent Nos. 1 and 2, had filed their `Counter Affidavit’, before the `Adjudicating Authority’ / `Tribunal’, no documents were filed along with the said `Affidavit’, and in fact, the only defence, projected by the Respondent Nos. 1 and 2, was that, the money for the lands, were given by `RPPL’ to `RISPL’, which inturn, provided the `Funds’, to the 3rd Respondent. As a matter of fact, `not a shred of documentary evidence was produced’, to substantiate this `Claim’. Moreover, despite the fact it is claimed that the 3rd Respondent is a `Special Purpose Vehicle’, floated by the Regen Group of Companies, but again, not a shred of documentary evidence, is furnished to substantiate this `Claim’.

# 7. The grievance of the Appellant is that, the `Adjudicating Authority’, had accepted the unsubstantiated defence of the Respondent Nos. 1 and 2, inspite of the fact there was not a piece of documentary evidence to substantiate their `Claims’, and the said finding of fact was in negation of the `Principles of Natural Justice’, when the Appellant had presented `overwhelming evidence’, which indicates that the `Fraud’, was perpetrated by the `Respondents’.

# 8. According to the Appellant, none of the documents produced by her, were considered and no specific finding, was rendered as to its contents. However, the `Adjudicating Authority’, had proceeded on the footing the assertion of the Respondent Nos. 1 and 2 that the `3rd Respondent’, is a `Special Purpose Vehicle’, floated by the `Regen Group of Companies’, but again, not a shred of documentary evidence, is produced to substantiate this `Claim’.

# 9. The Learned Counsel for the Appellant, adverts to the Judgment of the Hon’ble Supreme Court of India in Maria Margarida Sequeria Fernandes & Ors. v. Erasmo Jack de Sequeria (Dead) through LRs (AIR 2012 SC 1727), wherein, at Paragraphs 71 and 72, it is observed as under:

71. “Apart from these pleadings, the Court must insist on documentary proof in support of the pleadings. All those documents would be relevant which come into existence after the transfer of title or possession or the encumbrance as is claimed. While dealing with the civil suits, at the threshold, the Court must carefully and critically examine pleadings and documents.

72. The Court will examine the pleadings for specificity as also the supporting material for sufficiency and then pass appropriate orders.’’

# 10. The Learned Counsel for the Appellant submits that the `impugned order’, fails to appreciate the voluminous material evidence produced, which clearly points out that the lands in question, were purchased in the name of the 3rd Respondent, utilising the Funds of `RISPL’, which was not in the ordinary course of business, and provided `no profit’ or `gain’, to `RISPL’.

# 11. The version of the Appellant is that, a mere perusal of the `Memorandum of Association’ of the `3rd Respondent / Company’, would reveal that there are `Two Subscribers’, to the `Memorandum of Association’, which are not related, either to `RPPL’ or `RISPL’, and the `Board Report’, for the year 2018-2019, filed by the `3rd Respondent /Company’, will show that there are `Three Directors’, in the `3rd Respondent / Company’, who are also not related to `RISPL’ or `RPPL’, in any manner, whatsoever.

# 12. According to the Appellant, the `RISPL’ and the `3rd Respondent’, do not form a `Group Company’, since the facts of the present case, do not satisfy the `threshold’, specified in `Explanation (b) to Section 5 (b) of the Competition Act, 2002, which runs as under:

“(b) group means two or more enterprises which, directly or indirectly, are in a position to-

(i) exercise twenty-six per cent or more of the voting rights in the other enterprise; or

(ii) appoint more than fifty per cent of the members of the board of directors in the other enterprise; or

(iii) control the management or affairs of the other enterprise.’’

# 13. It is the plea of the Appellant that even assuming without admitting that the `3rd Respondent’, is a `Related Party’ / `Group Company’ of `RPPL’ and `RISPL’, it is mandatory for a `Board Resolution’, to be passed under `Section 188 of the Companies Act, 2013’, before the lands, belonging to `RISPL’, could be sold to a `Related Party’. In fact, the `Transactions’, impugned by the `Appellant’, are not on arms length basis, as `RISPL’, received `no consideration’ or other `benefits’, for paying for the lands registered in the name of the `3rd Respondent’.

# 14. The Learned Counsel for the Appellant points out that `no audit’, was conducted by `RPPL’ from the year 2017 to 2021, till the `Resolution Plan’, was `approved’, and as a matter of fact, the Audit of `RPPL’, was conducted much later and uploaded in the `MCA Website’, only on  24.03.2022. Besides this, the 3rd Respondent, had filed the `Audited Financials’, until 2019, neither does the `Financials’ nor the `Annual Report’ of the 3rd Respondent, contain any details, regarding `Loans’, taken from `RISPL’, to acquire `land parcels’.

# 15. The Learned Counsel for the Appellant, refers to the Judgment of this `Tribunal’, in Mrs. Renuka Devi Rangaswamy v. M/s. Regen Powertech Private Limited and 2 Ors., (vide Comp. App (AT) (CH) (INS.) No. 357 of 2022), wherein, at Paragraph 39, it is observed as under:

39.“……… comes to a `Resultant Conclusion’ that the `Transfer of Assets’ among the `Group Companies’, ex-facie is not a `Fraudulent Trading’, as per Section 66(1) of the Insolvency & Bankruptcy Code, 2016. Moreover, because of the fact that all `Transactions’ between the Companies as well as the `Asset’ details were maintained in a `Transparent Manner’, on an `SAP System’ (including the `Fixed Assets Register’) and further the `Transactions’ of the `Corporate Debtor’ and the `1st Respondent’ were `Audited’ every year, the `Plea’ of `Fraudulent Trading’ as  projected by the `Appellant’ / `Applicant’, is not proved, to the subjective satisfaction of this `Tribunal’, in a `convincing manner’.’’

and points out that the aforesaid Judgment, will not apply to the facts and circumstances of the instant Comp. App (AT) (CH) (INS.) No. 356 of 2022.

# 16. While rounding up, the Learned Counsel for the Appellant prays for allowing the instant `Appeal’ or in the alternative, to remand the matter to the `Adjudicating Authority’ / `Tribunal’, for fresh consideration on `merits’, by considering all the materials placed on record.

Appraisal:

# 17. Before the `Adjudicating Authority’ / `Tribunal’, the Appellant / Petitioner, had preferred IA(IBC)/487(CHE)/2021, in IBA / 1424 / 2019 (filed under Section 25 & 66 of the I & B Code, 2016, read with Rule 11 of the NCLT Rules, 2016), and sought the undermentioned reliefs, were prayed for:

• (i) To declare the following Sale of Immovable Properties for a total extent of 16.02 Acres in favour of the 3 Respondent M/s. Lakshmiranga Perumal Renewable Energy (P) Ltd., (LPREPL) as fraudulent, null and void and consequently, direct that the said Immovable Properties as detailed below are transferred and vested with the Corporate Debtor M/s. Regen Infrastructure and Services (P) Ltd.,

• (a) Sale Deed Doc. No.174 / 2017 dated 30.03.2017 executed by Shri. Jayantilal Amarshibhai Kaila in respect of 1.65 Acres (00.66.77 Hectares) in Location PVKH61, S.No.92 / 1, Part 1, Khakharechi Village, Maliya (MI) Taluk, Morbi Registration District in Gujarat State.

• (b) Sale Deed Doc. No. 163 / 2017 dated 28.03.2017 executed by Shri. Hardasbhai Manjibhai Tentiya in respect of 2.90 Acres (1.17.36 Hectares) in Location PVKH64, S.No.106/1, Part 1, Khakharechi Village, Maliya (MI) Taluk, Morbi Registration District in Gujarat State.

• (c) Sale Deed Doc. No. 162 / 2017 dated 28.03.2017 executed by Shri. Labhuben Maganbhai and Shri. Kantaben Maganbhai in respect of 1.65 Acres (00.66.77 Hectares) in Location PVKH65, S.No.1102, Part 1, Khakharechi Village, Maliya (MI) Taluk, Morbi Registration District in Gujarat State.

• (d) Sale Deed Doc. No. 172 / 2017 dated 30.03.2017 executed by Shri. Nanjibhai Jeevabhai Ghaghania and Shri. Sukkhabhai Jeevabhai Ghaghania, in respect of 2.60 Acres (1.05.37 Hectares) in Location PVKH53, S.Nos. 915 Part 4 & 915 Part 5 resp., Khakharechi Village, Maliya (MI) Taluk, Morbi Registration District in Gujarat State.

• (e) Sale Deed Doc. No. 173 / 2017 dated 30.03.2017, executed by Shri. Dineshbhai Thakarshibhai Saravadiya, in respect of 2.47 Acres (1.00.16 Hectares) in Location PVKUM12, S.No.  303 Part 3, Kumbhariya Village, Maliya (MI) Taluk, Morbi Registration District in Gujarat State.

• (f) Sale Deed Doc. No. 1519 / 2017 dated 24.03.2017 executed by Shri. Vasubhai Manjibhai Kobi, in respect of 2.18 Acres (0.58.94 Hectares & 0.29.34 Hectares) in Location PVS18, S.Nos.11/1 & 11/2, Rayadhra Village, Halvad Taluk, Morbi Registration District in Gujarat State.

• (g) Sale Deed Doc. No. 2089 / 2017 dated 16.03.2017 executed by Shri. Rahulbhai Ranchhodbhai Kobi, in respect of 2.57 Acres (0.23.26 Hectares & 0.80.94 Hectares) in Location PVS40, S.Nos.337 / 3 / Part 1 / Part 1 & 337 / 3 / Part 2, Ranchhodgarh Village, Halvad Taluk, Morbi Registration District in Gujarat State.

• (h) To direct the Respondents 1 to 8 to jointly and severally contribute to the assets of the Corporate Debtor by paying a sum of Rs.1,12,70,700/- into the Bank Account of the Corporate Debtor under CIRP.’’

# 18. According to the Appellant / Petitioner, in exercise of the `Power and Duties’, as an `Interim Resolution Professional’ / `Resolution Professional’, in the context of collecting information, about the `Assets’ of the `Corporate Debtor’ / `M/s. Regen Infrastructure Services Pvt. Ltd.’ (`RISPL’), brought to the notice of the `Adjudicating Authority’, that IA /1040 / 2021, was filed under Section 19(2) of the I & B Code, 2016, in that Application, a direction was sought from the Respondents, to comply with the numerous requirements of the Appellant / Petitioner, including;

• “(i) RISPL Assets as on the Insolvency Commencement Date (19/02/2020) classified into appropriate categories for easy identification, with estimated values assigned to each category along with Copy of the Register of Fixed Assets (FA);

• (ii) Original Land Documents of RISPL and its Wholly Owned Subsidiaries with Index of Land Description including Leased Land, Survey No., Registered Document No., Name in which registered, Name / Address and Related Document of the Power of Attorney if the Land is not yet registered in Companies Name, Book Value, Details of Right to Way with documents;

• (iii) Lands in Inventory and Manual – Assets of RISPL and its Wholly Owned Subsidiaries – Original Documents.’’

# 19. On behalf of the Appellant / Resolution Professional, it is pointed out before this `Tribunal’ that the `Balance Sheet’ of the Corporate Debtor, as on 31.03.2019, reflects the details of Land Assets of the Corporate Debtor as 

• (i) Land in Fixed Assets Category at Rs.7,71,98,398/- 

• (ii) Land in Inventory and Manual Category at Rs.44,11,76,094/- and that the break up for the Lands in Inventory and Manual reveal that numerous lands situated within the different locations of Tamil Nadu, Gujarat, Maharashtra and Madhya Pradesh, were purchased by the `Corporate Debtor’.

# 20. It is the version of the Appellant that in the Registration District of Morbi, in Gujarat, the Corporate Debtor, had purchased lands at 9 Locations from the Farmers and in fact, 21.35 Acres of Land, was purchased with the funds of the Corporate Debtor of Rs.1,97,97,187/- (inclusive of Stamp Duty, Registration Charges and Other Expenses), which funds were paid to the Farmers in February and March 2017.

# 21. According to the Appellant, `no documents’, were available in the records of the Corporate Debtor and the Assets could not be traced and that the Respondent Nos. 1 and 2, had never furnished these details, despite her attempts to get the `Asset Details’, of the `Corporate Debtor’. Also that, the Appellant, had identified that though the `Funds’, were paid to the `Sellers’ / `Farmers’, directly, from the `Account’ of the `Corporate Debtor’ / `M/s. Regen Infrastructure and Services (P) Ltd.’ (`RISPL’), all the `Sale Deeds’, were registered in the name of the `3rd Respondent’ / `M/s. Lakshmiranga Perumal Renewable Energy (P) Ltd.’, instead of the Registered, in the name of the `Corporate Debtor’.

# 22. The Learned Counsel for the Appellant points out that the `3rd Respondent’, being a `Related Party’ of the `Corporate Debtor’, having `common Directorship’, and is represented by the `4th to 6th Respondents Directors’. In reality, the `4th Respondent’, who is the `Director’ of the `3rd Respondent’, is the `Director’ of `two Wholly Owned Subsidiaries’ of the `Corporate Debtor’, Viz. (a) M/s. Marthanda Wind Power AP (P) Ltd., and (b) M/s. Varshini Wind Power (P) Ltd., and is an Ex-Employee of M/s. Regen Powertech (P) Ltd., (`RPPL’), which is the `Holding Company’ of the Corporate Debtor.

# 23. It is the stance of the Appellant / Applicant that, through an email dated 07.01.2021, she had informed the `Committee of Creditors Members’, pertaining to the lands described in Inventory and Manual Category, as they were purchased with the `Funds’ of the `Corporate Debtor’, and registered in the name of the `3rd Respondent / M/s. Lakshmiranga Perumal Renewable Energy Private Limited’. Moreover, the said illegal `Asset Transfer’, in `Related Parties Name’, was made with the knowledge of the Respondents. Later, through an email dated 08.01.2021, the Appellant / Applicant, brought to the fore in respect of a `Letter of Authority’, dated 10.10.2019, by the 7th Respondent in his capacity as the `Authorised Signatory’ of the `3rd Respondent’.

# 24. The contention of the Appellant is that, some of the Properties which were transferred by the 3rd Respondent to other Parties (third parties), at a higher price than at which, it was purchased, and that the later Sales, were brough to the notice of the `Committee of Creditors’, in its 6th Meeting dated 02.02.2021.

# 25. The Learned Counsel for the Appellant points out that the 1st Respondent through email dated 19.02.2021, had stated that a sum of Rs.9,12,49,999/- was received from M/s. Regen Powertech Private Limited (`RPPL’), the Holding Company of the Corporate Debtor, to pay the Farmers, in regard to the purchase of land and the lands so purchased are held by one of the Special Purpose Vehicle (`SPV’) of `RPPL’, but no evidence / proof, was produced by the 1st Respondent, for such transfers.

# 26. The other plea taken on behalf of the Appellant is that, no explanation was offered on the side of the 1st and 2nd Respondents, as to why the said `Assets’, are reflected in the Corporate Debtor’s Books, when the Assets are in the 3rd Respondent’s name. Also that, the 3rd Respondent’s Balance Sheet for the Financial Year ended 2018-2019, had not reflected, any `Land Fixed Assets’.

# 27. The Learned Counsel for the Appellant projects an argument that the `Onus of Proof’, to substantiate a `Plea of Fraud’, is upon the shoulders of a `Resolution Professional’, especially when an `Application’, was filed before an Adjudicating Authority, under Section 66 of the I & B Code, 2016. In reality, the `Resolution Professional’, is to form an opinion and to go before the `Adjudicating Authority’ / `Tribunal’.

# 28. The Learned Counsel for the Appellant, adverts to the `Order’ dated 26.11.2020 of the Hon’ble High Court of Delhi in the matter of M/s. Venus Recruiter Private Limited v. Union of India and Ors. in W.P.(C) 8705 / 2019 & CM APPL. 36026 / 2019, wherein at Paragraph 84, it is observed as under:

• 84. “The manner in which it is sought to be interpreted by the Petitioner and by the Respondents is in stark contrast. The Respondents rely heavily on this provision to argue that avoidance applications would not affect the CIRP. This is because under the scheme of the IBC, insofar as avoidance applications are concerned, the RP has to collect the details, form an opinion, make a determination and submit the same to the NCLT within the prescribed timelines. This is independent of the various other steps which are part of the CIRP. The activities in respect of objectionable transactions, which the RP has to conduct, would run parallelly with the other steps of the CIRP. However, finally, the RP would submit all the details to the NCLT along with the Resolution Plans. That is the purpose of the provision. The provision cannot be interpreted in a manner so as to say that the applications can survive the CIRP itself. Section 26 of the IBC also cannot be read in a manner so as to mean that an application for avoidance of transactions under Section 25(2)(j) can survive after the CIRP process. Once the CIRP process itself comes to an end, an application for avoidance of transactions cannot be adjudicated. The purpose of avoidance of transactions is clearly for the benefit of the creditors of the Corporate Debtor. No benefit would come to the creditors after the Plan is approved. Thus, Form H cannot come to the aid of avoidance applications to remain pending beyond the CIRP process.’’

# 29. The submission of the Learned Counsel for the Appellant is that, the `Resolution Professional’, has a duty, under the I & B Code, 2016, to make an opinion instead of `Corroborating a Transaction’, to push it under Section 66 of the Code. In this connection, the Learned Counsel for the Appellant falls back upon the Judgment dated 04.05.2022 in Comp. App (AT) (INS.) No. 454 of 2022, between Mr. Nitin Bharal (Ex-Director / Promoter, New Delhi) and 3 Ors., v. Stockflow Express Private Limited, through Liquidator Mr. Sanjay Gupta, New Delhi, wherein at Paragraphs 22 and 23, it is observed as under:

• 22. “A perusal of the scanned copy of the Bank Statement evidences that the Adjudicating Authority has rightly concluded that there are no reasons given for how an amount of Rs.42,33,304/- has been settled for a mere payment of Rs.3 Lakhs/-. This fraudulent transaction took place during the time the Appellants were Directors of the ‘Corporate Debtor’ and squarely falls within the ambit of Section 66 of the Code.

• 23. Keeping in view, the copy of the Bank Statements, amounts written off as bad debts during the Financial Year when the Appellant/Promoters were the Directors, the circuitous sale of shares, this Tribunal is of the earnest view that the contention of the Learned Counsel for the Appellant that there was no Transaction Audit and hence the Adjudicating Authority ought not to have given a finding of fraudulent transaction under Section 66 of the Code is unsustainable. If the IRP/RP has prima facie suspicion of any fraudulent transactions, as defined under the Code, have a recourse to approach the Adjudicating Authority for necessary action. At the cost of repetition, it is specifically averred by the IRP that there was no cooperation from the Appellant/Promoters and hence an Affidavit was filed by him with a detailed analysis. We find merit in the submission that not having cooperated in giving information to the IRP, the contention of the Appellants that the Adjudicating Authority has in the absence of any Audit Report, has given these findings, which cannot be relied upon, has no legs to stand. To reiterate, the debts written off to defraud the Creditors, the cash transaction post their resignation evidencing their financial control in the affairs of the ‘Corporate Debtor’, clearly establish that they are ‘fraudulent transactions’ done with a wilful intention of financial gain at the cost of negatively effecting the Creditors.’’

# 30. The Learned Counsel for the Appellant points out that, the Appellant took endeavours to produce 

• (a) the Balance Sheet of the Corporate Debtor for the Financial year 2019-20, which shows that the Assets are reflected in the Books of the Corporate Debtor, 

• (b) the Balance Sheet of the Respondent 3 for the Financial Year 2018-19 to show that the said Assets and few Assets sold to others by the 3rd Respondent are not reflected in the Books of the 3rd Respondent, 

• (c) the specific Sale Deeds which expressly shows that the land assets are registered in the name of the 3rd Respondent – these are sale deeds which was obtained by the Appellant through her own efforts without the assistance or aid of the 1st and 2nd Respondents, and 

• (d) the Extract of Transaction Audit Report submitted in IA(IBC)/591(CHE)/2021 in IBA/1424/2019, to establish the `Fraudulent’ basis of the whole transaction and the basis of such an opinion, before the `Adjudicating Authority’, and the Adjudicating Authority, had committed an `error’, in arriving at a conclusion that the `Appellant’ / `Applicant’, was making sweeping allegations.

# 31. The pith and substance of the Appellant’s contention is that, the `Lands’, in question are capable to `generate Wind Energy’, a `vital crucial element’, in sustaining the `Corporate Debtor’s Operations’, as a `Going Concern’, and the very fact, that these `Assets’, are sold at a `Higher Amount’ than at which, the same was purchased, indicate, that the Respondent Nos. 1 and 2, were carrying on the `Corporate Debtor’s business’, with the main intent of `defrauding’, its `Creditors’, with the `Respondent Nos. 3 to 8’, colluding and being a `Beneficiary’ of the same.

# 32. Before the `Adjudicating Authority’, the Respondent Nos. 1 and 2, took a stand that they had not gained personally anything, from any transaction, with the `1st Respondent’ and the `Appellant / Applicant’, had not produced any material / proof, to substantiate the allegations, so made.

# 33. To be noted that, the expression `Party to the carrying on business’, indicates `taking positive steps’, in carrying on `company’s business’, in a `fraudulent manner’. The intent to `defraud’, is to be judged, by its `effect’ on a `Person’, who is the `object of conduct’, in question.

# 34. A `preponderance of probability suffices’, but the degree of probability must be such that the `Tribunal’, is satisfied and further that under Section 66 of the I & B Code, 2016, it is not essential to attract that there ought to be a `Debtor’ and a `Creditor’ relationship.

# 35. It must be borne in mind that for proving a `Fraudulent Trading’ needs meeting the `High Standard of Proof’, which is attached to a `Fraudulent Intent’. A `Director’, of a `Company’, may be proceeded against for a `Wrongful Trading’, because of the reason of `Negligent Failure of Management’. Besides this, `a person’, knowingly a `Party’ to a `Fraudulent Trading’, by the `Company’ concerned, may be subject to the proceedings.

# 36. A `Single Fraud’, against `a person’, may result in Civil Action in the `Realm of Tort’. It does not lie in the mouth of `Directors of a Company’, being accused of `Fraudulent Trading’, to allege that the `Company’s Claim’, for recovery in Civil Action is barred.

# 37. `Dishonesty’, is an essential ingredient of `Fraudulent Trading’. The `Aspect of Dishonesty’, is to be established and it cannot be inferred in any manner. Whether a `Director’, had exercised his skill, experience and general knowledge, to be expected of a person, in carrying out the `duties of his functions’, is to be determined for a `Liability’, in the considered opinion of this `Tribunal’.

# 38. The Appellant has a `duty’, to establish to the satisfaction of this `Tribunal’, that a `person’, is knowingly carrying on the business with the `Corporate Debtor’, with an `dishonest intention’, to `defraud’, the `Creditors’. For a `Fraudulent Trading’ / `Wrongful Trading’, necessary materials are to be pleaded by a `Litigant’ / `Stakeholder’, by furnishing `Requisite Facts’, so as to come within the purview of the ingredients of Section 66 of the I & B Code, 2016. Suffice it, for this `Tribunal’, to pertinently point out that the ingredients of Section 66 (1) and 66 (2) of the I & B Code, 2016, operate in a different arena.

# 39. At this stage, this `Tribunal’, aptly points out the decision of the Hon’ble High Court of Kerala, in South India Paper Mills Pvt. Ltd. v. Sree Rama Vilasam Publications (P) Ltd., reported in (1982) 52 Comp. Cas. 145 Ker., wherein, at Paragraph 10, it is observed as follows:

• 10. “This is a far cry from the “false representations” or the “false pretence” alleged in the affidavit, and I have not been referred to any authority to hold that the carrying on of business after the presentation of a winding-up petition, without disclosing the pendency of the proceedings, should by itself be presumed to be fraudulent. Mr. Vyasan Potti argued that where such presentation is actually followed by a winding-up order, even if it be nearly four years later as in this case, the effect of it is to hold that the company was unable to pay its debts at the time the petition was presented, and that the directors should be presumed to know even at that time that there was no reasonable prospect of repayment. A proposition so wide has not received judicial recognition so far. A company may actually be insolvent at a given time; but its directors may bona fide hold a different view. Even in a case where they are aware of the true position, they may still think that all was not lost and that they would be able to stem the rot by further borrowings and improving the business. In re F.L.E. Holdings Ltd. [1967] 1 WLR 1409 ; [1968] 38 Comp Cas 214 (Ch D) is a case in point. Mr. Brown who was in de facto control of the company had borrowed some amounts from a bank in July, 1965, by deposit of title deeds. But the mortgage was not registered. By September, 1965, two other creditors had obtained decrees against the company and it was fairly clear that it had become insolvent. Thereafter, he gave a legal mortgage to the bank by registering the charge and this transaction was attacked as a fraudulent preference. Pennycuick J. held that there was no fraud at all because Mr. Brown had faint hopes that by keeping good faith with the bank he could get further advances from it to revive the company. As already seen from Exs. A-1 and A-2, the company was indebted to the applicant to the tune of Rs. 28,000 even before winding up had commenced in January, 1973. During the year 1973, the company purchased paper worth Rs. 9,496 but paid Rs. 15,486 to the applicant. That is, during the first year after the commencement of winding-up, it paid not only the full value of its purchases, but something more. Exhibit A-4 indicates that paper was supplied to the company only once during 1974, i.e., in the month of June; and by that time the outstandings had been brought down to around Rs. 11,000. No supply was made at all in 1975, but still the company paid Rs. 7,760 during that year. These facts do not fit in with a presumption that the directors of the company were aware, at the time the purchases were made, that there was no reasonable prospect of repayment at all. The inference referred to by Maugham J. in William C. Leitch Bros.’ case [1932] 2 Ch 71 (Ch D) is one to be drawn when knowledge on the part of the directors is shown to exist; it is not an inference to be drawn about such knowledge itself.’’

# 40. As far as the present case is concerned, the Sum, for the `Purchase of Lands’, by the `3rd Respondent’, was provided by `RPPL’, to the `Corporate Debtor’, who in turn, provided that money to the 3rd Respondent, one of the `Special Purpose Vehicles’, created by the `Regen Group’. In this connection, this `Tribunal’, points out that the `Respondent Nos. 1 and 2’, before the `Adjudicating Authority’, came out with a stand that the `RPPL’, had funded the `Corporate Debtor’, towards the `Development of the Project’, and the said act / transaction, took place within the `Group’.

# 41. In the light of the above, it is crystalline clear that the transaction of `Transfer of Assets’, among / within the `Group Companies’, `ex-facie’, will not come within the umbrage of the `Fraudulent Trading’, as per Section 66 (1) of the Code, as opined by this `Tribunal’. Furthermore, in the instant case, the `Appellant / Applicant’, has made an fervent  endeavour, to converse the transactions, allegedly made by the `Respondents’, as per Section 66 of the Code.

# 42. Be that as it may, in the light of qualitative and quantitative discussions, this `Tribunal’, on a careful consideration of the contentions, advanced on behalf of the `Appellant’, and keeping in mind of the facts and circumstances of the case, in an integral manner, and also on going through the `impugned order’ of `dismissal’, in IA(IBC)/487(CHE)/2021 in IBA/1424/2019, passed by the `Adjudicating Authority’ (`National Company Law Tribunal’, Division Bench – II, Chennai), comes to a conclusion that the `Appellant / Applicant’, had not established the `Aspect of Fraud’ or `Dishonest Intent’, on the Respondents’ side, to the subjective satisfaction of this `Tribunal’. As such, the view taken by the `Adjudicating Authority’ (`National Company Law Tribunal’, Division Bench – II, Chennai), preferred by the `Appellant / Applicant’, in `dismissing’ the IA(IBC)/487(CHE)/2021 in IBA/1424/2019. is free from any `legal errors’. Consequently, the `Appeal’, fails.

Result:

In fine, the instant Comp. App (AT) (CH) (INS.) No. 356 of 2022, is dismissed. No costs.

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